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Full transcript below:

Thank you for inviting me. I’m
Ken Braun, a policy analyst for the Mackinac Center for Public Policy, and I’ve
given you a couple handouts here with some of our ideas. The article forms the
basis of quite a few of the remarks in the “101 Recommendations.” I’ll touch on
a couple of those, but obviously we’re not going to go through a hundred items today.

Your committee is charged with
how it should reform, restructure and
reinvent state government. Another document that I hope you all do have somewhere
in your office that I didn’t hand out to you is the state Constitution, and
it’s a good place to start with what you should be doing. It’s not a perfect
document — I’d make some changes to it if I could wave a magic wand, and I’m
sure all of you would, too — but generally speaking, it charges state
government with protecting life, property and individual liberty and individual
rights from aggression. It says government should enforce contracts, pave
roads, fund schools and do a few other very limited things. It does not say
what is the method to provide these things, and it does not assume that one
method is superior at all times and all places. And most profoundly, it does
not equate high costs with superior outcomes.

It doesn’t say, for example,
that you should take the tax dollars of Michigan citizens and fund film
studios. We’re the Mackinac Center for Public Policy; pur mission is to come
here and remind you what the purpose of state government is. And that is to
stick to those core constitutional functions that I just mentioned — and to do
no more.

Find out what those missions
are and do them well, do them as efficiently as possible. And when you’re done,
go back again and try to find how to do them more efficiently. This is our
advice to you in any era, but right now you don’t have a choice in the matter.
Measured in terms of gross domestic product, Michigan was ranked 21st in 2000,
about a decade ago. Today we’re 41st, literally one of the 10 poorest states in
America.

The reason isn’t hard to see;
we all know the numbers, we’ve lost more than 15 percent of our employment base
during that decade. That’s around 800,000 jobs lost. Our new governor believes
we must ask ourselves what we can afford as we try to reinvent and restructure
state government. Well, it’s pretty clear that we can’t afford the government that
we’ve had, and we can’t afford to adopt tax policies that are going to cost us
any more jobs.

Some may come before this
committee as you go through these issues and remind you that the state is well
under the Headlee revenue cap, or that the general fund is down, or any number
of supposed arguments for how you can fix some of these problems simply by
throwing more cash at them. I’m sure you’ve read their opinions in newspapers,
and they’ve doubtlessly sent advice to your offices as well.

Well, unless they come before
you with a way that they’re going to bring those 800,000 jobs back real fast,
then you should probably ignore a lot of that advice. Because you can’t blast
that huge of a hole through this state’s economy, and then expect to bring more
money out of it to fund state government. That perverse thinking is what Ronald
Reagan used to call the status quo, which he defined as Latin for “the mess
we’re in.”

The largest single expenditure
of state government is K-12 education. We spent about $11 billion on it last
year. Nearly three-quarters of that cash went to pay for public school
employees — or their compensation, I should say. It’s no exaggeration to say
that the people who work in your local schools represent the most expensive
thing that state government does. You have no choice: You must take a hard look
at this expenditure and make your biggest reforms right here.

The most recent data from the
U.S. Department of Education shows that Michigan’s public school teachers have
the 10th highest average salaries in the nation, and there are 96,000 of them
here. And that’s before you talk about the 50,000 support staff that go on top
of that. (By the way, what I’m going through now is in the article that has
been passed out before you.)

Remember what I said about GDP
per capita? Michigan is a top 10 state for teacher pay, and a bottom 10 state
for its ability to pay those teachers. Walk any further down this dark tunnel,
and you won’t be seeing light at the end of it, and you should be running in
the other direction. Here’s what that other direction looks like.

As noted, Michigan is now
ranked as the 10th poorest state in the
nation. You should ask yourselves, what are the states ranked closest to us in
GDP per capita doing about their teacher salaries? They’re the ones whose
ability to pay their teachers is most comparable to ours. If you look at that,
you’ll find that they’re all paying considerably less. And nearly all of them
are getting better results, according to one commonly used standardized test.

The average annual teacher pay
of those 10 other states ranked closest to us in ability to pay is $10,584 per
teacher annually less money. This is a public versus public comparison. Ten
other states, similar in wealth to Michigan, buying the same government service
and getting the same or better results for less. If we just took the average of
the way those 10 other states do it and paid at that rate, we have $1 billion
less per year in spending. Rich states have the option of paying that extra
billion dollars, poor states don’t.

And incidentally, consider the
case of South Dakota, dead last in average teacher salary in the nation, but
now the 18th wealthiest state in the union in the terms of GDP per capita. A
richer state than we are, paying a lot less for the same educational service.
South Dakota’s fourth graders who are eligible for free or reduced priced meals
scored above the national average in reading on national standardized tests.
Michigan’s fourth graders on the same test scored below the national average.

South Dakota is spending a lot
less and getting more from it. If we paid the average South Dakota teacher’s
salary, the annual savings to the state budget would be $1.8 billion. Paying
for public education is in the Constitution. Paying more than you can afford
for it — than just about everybody else
— isn’t in here.

We have famously identified at
the Mackinac Center, a $5.7 billion gap between what the average public-sector worker
receives for their fringe benefits and what private-sector workers are given.
And that’s in that “101” ideas brochure — and more of it is on our website, by
the way. That’s just benefits, incidentally — it’s not salary. Public school
employees account for $2.5 billion of that $5.7 billion difference.

So you need not even look to just
teacher salaries to find a billion dollars in this budget; there are other
options you can go after. Those benefits, for example: Increase the co-pays on
the health insurance policies — they pay significantly less than private sector
workers do; allow for more competition in health insurance benefits — some of
that is already done by the previous Legislature.

And go after much more. For
example, think about the 50,000 support staff. Contracting out for
non-instructional services, such as busing, food and custodial work, is saving
significant amounts of money in many districts, yet only about half of the
districts in the state seek outside help for even one of these three services.
Yet based on savings we have seen and documented in other districts, these
savings could be well into nine figures if every district in Michigan were
required to competitively bid for all of these services. $100 million or more
in savings just there.

I’ll move on from public
schools to a few other reforms in a moment, but I want to leave you with an
idea that applies to this and every other area that you look at. Don’t be shy
about exploring your legal options and pushing for them in making these
reforms.

For example, regarding the
teacher salaries, is it possible for the Legislature to mandate a cut to every
collective bargaining contract in every school district in the state, if you
just walk in and say, “We can only afford to pay you so much, and your
collective bargaining contract will be reduced across the board by X percent in
order to meet that cost” — can you tell them that? Can you tell them this is
how much money you’ll get and pay will be reduced accordingly? I’m not sure
what the answer is to that. I have a lawyer that thinks it’s a distinct
possibility. You’ve all got more lawyers at your disposal than I do. You should
find out, because it offers you an intriguing opportunity.

You could give the districts
the choice of two options: that first one I just named, simply cut the
collective bargaining contract by a percentage necessary to reach the new
revenue level, or, district, if you don’t want to take that option, I bet this
would cause a lot of districts and their unions to get together and begin looking
at a lot of other options — ideas like outsourcing their food services, their
busing services and their custodial services. Or reforming those benefit costs,
or many other options.

And if they don’t want to do
this, then you’ve made the choice for them and saved the taxpayers a ton of
money without laying off a single teacher, or closing a single building or
changing really anything about the way they operate. If you can be creative
with your solutions with things like this — and you doubtlessly have other
ideas to explore on how to push these reforms through — it will inspire more
creative solutions from school districts and many of the other local
governments down-line from your spending.

Prisoners in Michigan are
another huge expense of state government. I’ve heard some of the groups you’ve
had before me up here, so I’m sure you’ve heard this before, but this is
another place where the costs and results don’t align for a poor state that
can’t afford to over-pay any longer. It is a significant cost of state
government, and even modest percentage changes can yield great big savings.
States that get on the wrong side of their corrections costs generally get
there for one of two reasons: reason A, they lock up too many people or they do
it for too long; reason B, they pay too much for each person they lock up. In
Michigan, we’ve been very creative — we chose option C, all of the above.

Addressing the first side of
this while working for a previous governor, the “lock up too many people side,”
the spokesman for the Michigan Department of Corrections made the following wise
observation: He said we need to decide whether we lock people up because we’re
afraid of them, or because we’re mad at them. The point of this is that not
every crime needs a very costly cage as punishment. Non-violent crimes can be
addressed in other ways and less costly ways. And even in ways that create
better restitution for the victim. Those should be aggressively considered by
you. Locking people up because we’re afraid of them, that’s definitely in the
Constitution. That’s a public safety issue. Locking them up because we’re mad
at them, isn’t in there, and you should think about a different way of doing
it.

To costly option B, the cost
per prisoner, I will note that the previous governor essentially ended
Michigan’s experiment with privatizing prisons. The evidence from other states
indicates that this is a significant cost-saver. If you can just privatize one
prison, it encourages the other public prisons and their unionized employees to
adjust their costs, so as to compete and prevent further privatizations.
Competition can wonderfully concentrate the mind regarding what the
Constitution requires and what it does not.

Whether corrections or schools
or much else, one unavoidable consideration behind much of what I’m saying today
is the influence of public-sector unions. We have civil service protections in
place already, but also collective bargaining for public employees. It doesn’t
have to be like this. In fact, it isn’t in other places.

You should be exceptionally
bold in reforming the Public Employee Relations Act, and even consider
repealing it. Likewise for Public Act 312 — if you don’t want to go aggressively
at removing public-sector unions, then perhaps you should require arbitrators
to consider, first and foremost, the ability of municipal governments to pay
their bills when mediating disputes with public-sector unions.

Emergency financial managers
need more teeth in their authority when they’re dealing with distressed cities
and bankrupt cities. Teacher tenure should be boldly reformed, allowing
administrators and school boards to get rid of really bad teachers, to mandate
improvements for modestly bad ones and to provide rewards for the many good
ones. Teachers themselves, who understandably wish to be thought of as
professionals, should have the right, like most of the rest of us, to negotiate
their own individual employment terms and not be forced to join a union and pay
its dues.

And when one of those unions
calls an illegal teacher strike, as the Detroit Federation of Teachers did a
few years ago, the law prohibiting those strikes that we already have on the
books, needs real teeth and real punishments. That union didn’t even get a slap
on the wrist under the current law, even though the future of their students
got slugged with a baseball bat and the future of that district was put in even
greater peril that it still hasn’t recovered from.

There’s a common theme to much
what I’ve said already: These are areas where Michigan is doing the same things
as other states, but doing them worse or and more costly. If the name of this
new committee means anything at all, it is that you will all be held, when this is done, individually
responsible for whether you make an effort to correct this imbalance and
whether you succeed.

There are a few other items
representative of the challenge that you need to aggressively pursue. Abolish
the Michigan business tax and replace it with some of the cuts that we’re
talking about here that are in that “101 Recommendations.” I won’t belabor this
point, because our fiscal policy director, Michael LaFaive, is going to carry
that message to the Senate Finance Committee this afternoon.

The Department of Environmental
Quality — regulations are also taxes, and this particular department has been
allowed too many over-steps to count over the last eight years — many of those
over-steps made possible by this Legislature. For example, just a few days ago,
on our news website, Michigan Capitol Confidential, we posted a story about a
Michigan entrepreneur who is in a bunch of other businesses, but for the last
several years, he’s been wanting to start a new business based on the idea of
pulling logs out of lakes — big, huge trunks of trees out of lakes, which he
sells the wood for furniture and musical instruments and whatnot.

The DEQ has been blocking the
creation this business because they were insisting that this man give them a
GPS coordinate for every single log that he pulled out of every single lake.
They were literally demanding messages from space before he could try to make a
buck. When our reporter started asking questions about this for that story, the
DEQ told us that they were getting rid of this regulation. And that’s good, and
it’s about time; the man’s been waiting for years to start a business.

It shouldn’t take a new
governor and a nosy news website to make them do the right thing. A Michigan
entrepreneur with a dream and a willingness to take a risk, should be enough. And
this is just one example of stupid rules and regulations that are special to Michigan.
Repeal of the item-pricing law is already on your agenda, and that is laughably
overdue for similar reasons. We should become the kind of state where
entrepreneurial risk-takers with capital, like that guy who wants to pull the
logs out of the lakes, can say: “I can make money here. And this government
isn’t going to drive me nuts when I try and do it.” If you get that done, then
those 800,000 jobs, they might start coming back.

These are some of the biggest
items that should be on your agenda, and examples of some of the many smaller
ones. There are too many of them to name them all in the time we have, because
Michigan government has unfortunately become very special for a lot of very bad
reasons.

The big point that I want to
get across is: You can’t be too bold in addressing these issues. No matter how
far you go, history will probably judge you as not having done all that you
could have. That’s the nature of representative democracy. You may even hear me
criticize you in a few years. But it shouldn’t be an excuse for you to hide
from taking big chances at big reforms.

Speaking of excuses I’d like to
leave you with this. When I’m done, there will be those who will find reasons
to say that some of what I’ve said isn’t a fair comparison of this or a fair
comparison of that, or that this state isn’t this, or that or whatnot. And you’re
seeing the governor get some of this criticism already with his public
employment document in the “apples to apples” matter that’s going forth right
now.

Well here’s an example of what
you need to remember when you look at that. I have two teenage sons, one of
whom doesn’t bring home the grades that he should, and he’s always got an
excuse. The geometry teacher didn’t do this fairly, or the kids in his science
group didn’t turn in their joint assignment or his English teacher doesn’t
explain the book properly, and so forth.

He’s a really clever kid, and
each individual excuse sounds quite plausible and reasonable on its own merits.
But I wouldn’t be doing my job as a parent if I didn’t back up and look at the
big picture, and recognize that Kyle has a vested interest in coming up with
the best excuses possible for why his grades aren’t where they should be.

This government is broke. We
don’t have the economy to pay anything close to what we once did for this
government. There are countless examples of how to do things better that we
could have tried to emulate and didn’t.

Those are some bad grades. You’re
not doing your job listening to the excuses being made for them.

With that, thank you very much
for having me, and I’ll try to answer any questions.